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Thursday, February 16, 2006

States' Rights and Agency Preemption

From yesterday's Washington Post comes an interesting story about the Bush Administration, the Consumer Product Safety Commission (CPSC), a bunch of other agencies, and the apparently increasing trend toward agency regulatory preemption of state law.

What's perhaps the most interesting is how, once again, "traditional" political roles have become inverted. On the one side is the conservative incumbent Adminstration, purportedly a champion of the states, supporting an aggressive policy of federal agency preemption of state regulation in such areas as mattresses, home mortgage lending, safety standars for cars, and liability for FDA-approved drugs. On the other side are Democratic senators, such as Hawaii's Daniel Inouye (quoted in the Post story), arguing that the federal government should leave the states free to pursue their own remedies.

Although the Post story focuses on the CPSC and mattress regulations (don't rip the tag off!), there's a series of lawsuits on perhaps a more important regulatory issue that has attracted the Supreme Court's attention in the lead case -- Wachovia Bank v. Burke.

In Burke, the Second Circuit -- the first court of appeals to consider the issue, although two have since followed suit -- held that regulations promulgated by the Office of the Comptroller of the Currency (OCC), which oversees national banks and their subsidiaries, could preempt state law even where authority for such regulations wasn't explicitly to be found in the National Bank Act, 12 U.S.C. [secs.] 21 et seq. At issue in Burke is 12 C.F.R. [sec.] 7.4006, which provides that: "Unless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank."

The problem is that a number of states have sought to crack down on predatory home mortgage lending, including lending by entities that are subsidiaries of national banks. There's no corresponding federal regulation, and so, if the federal regs preempt the various state laws, there's nothing the states can do, even though the federal government itself isn't doing anything. Although every court to rule on the issue has come out the same way, the Supreme Court nevertheless sought the views of the Solicitor General on Burke's petition for certiorari, which remains pending.

What's particulary eye-opening about this issue is the identity of the states wherein this problem has been the most pronounced -- those states that tend to have the most aggressive consumer protection laws, which, overwhelmingly, are "blue" states. And so Burke comes out of Connecticut; the corresponding Ninth Circuit case, Wells Fargo Bank v. Boutris, comes out of California; and the Sixth Circuit case raising the same issue -- Wachovia Bank v. Watters -- comes out of Michigan.

The administrative law question at the heart of these cases is itself complex and very important -- what is the limit on agencies' authority to preempt state law, especially when their organic statute either (1) nowhere speaks to preemption; or (2) like the National Bank Act, speaks explicitly only to certain types of preemption, inferring that the remainder of the statute does not authorize preemption? What little Supreme Court jurisprudence there is on the subject is a total mess, running, at times, in completely opposite directions, and so perhaps the Court sees in Burke the chance to clarify...

But the politics of it are, in my view, just as interesting and messy. Would the Administration so aggressively champion agency preemption of state regulation if the states whose regulations were at issue were Texas, Florida, the Deep South, and the Midwest? Is this just a further example, along the lines of Raich and Gonzales v. Oregon, of how the Administration's politics are only socially conservative, and aren't actually states'-rights-centric? Or, more cynically, that the Administration cares only about the rights of states that vote for them? Are there true conservatives who take issue with the Administration's pro-federal-regulation position?

I tell my students in Federal Courts that one of the most pernicious, and often invidious, means by which the federal government exercises authority over the states is preemption, which is often only inferred from Acts of Congress that nowhere expressly reach the question. In the context of agencies, it's often second-order implicit preemption. Indeed, as Justice Stevens wrote in dissent in Geier in 2000 (with lots of citations and footnotes omitted, and emphasis added):

Our presumption against pre-emption is rooted in the concept of
federalism. It recognizes that when Congress legislates "in a field
which the States have traditionally occupied ...[,] we start with the
assumption that the historic police powers of the States were not to be
superseded by the Federal Act unless that was the clear and manifest
purpose of Congress." The signal virtues of this presumption are its placement of the
power of pre-emption squarely in the hands of Congress, which is far
more suited than the Judiciary to strike the appropriate state/federal
balance (particularly in areas of traditional state regulation), and
its requirement that Congress speak clearly when exercising that power.
In this way, the structural safeguards inherent in the normal operation
of the legislative process operate to defend state interests from undue
infringement. In addition, the presumption serves as a limiting principle
that prevents federal judges from running amok with our potentially
boundless (and perhaps inadequately considered) doctrine of implied
conflict pre-emption based on frustration of purposes--i.e.,
that state law is pre-empted if it "stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress."

While the presumption is important in assessing the pre-emptive
reach of federal statutes, it becomes crucial when the pre-emptive
effect of an administrative regulation is at issue. Unlike Congress,
administrative agencies are clearly not designed to represent the
interests of States, yet with relative ease they can promulgate
comprehensive and detailed regulations that have broad pre-emption
ramifications for state law. We have addressed the heightened
federalism and nondelegation concerns that agency pre-emption raises by
using the presumption to build a procedural bridge across the political
accountability gap between States and administrative agencies. Thus,
even in cases where implied regulatory pre-emption is at issue, we
generally "expect an administrative regulation to declare any intention
to pre-empt state law with some specificity."This
expectation, which is shared by the Executive Branch, serves to ensure that States will be able to have a dialog with agencies regarding pre-emption decisions ex ante through the normal notice-and-comment procedures of the Administrative Procedure Act (APA), 5 U. S. C. § 553.

Anyway, all of this is to say that one thing appears certain: When the Solicitor General files his brief expressing his views on the cert. petition in Burke, it will argue for affirmance. And, even though all three circuits to reach the issue are in full agreement, it might be nice for the Court to lend its imprimatur, one way or the other, especially when (1) the federal preemption replaces state regulation with no regulation; and (2) it's only a particular group of states whose laws are at issue, as in Burke, and as in the CPSC issue at the core of the Post story.